Weaker April CPO production numbers

Boreneo Post

May 18, 2010, Tuesday

KUCHING: April’s crude palm oil (CPO) production numbers came in slightly weaker than March with month-on-month (m-o-m) numbers down 5.2 per cent while year-on-year (y-o-y) numbers were increased 1.8 per cent.

WEAKER PRODUCTION: April’s CPO production numbers comes in slightly weaker than March with month-on-month numbers down 5.2 per cent while year-on-year numbers were increased 1.8 per cent.

According to ECMLibra Capital Sdn Bhd (ECMLibra), exports were weaker as expected and fell 8.2 per cent m-o-m. On a y-o-y basis though, exports increased 8.1 per cent and on a cumulative basis, increased 7.4 per cent year to date (YTD).

The research house pointed out that this had been driven predominantly by China. It stated that cumulative exports to China were now 33 per cent increased y-o-y but could taper off from here as the country had reported high stocks level.

It reported that causing some drag however on export was India. The switching of CPO to soy oil appeared prevalent there since y-o-y, exports to India had dropped 25 per cent.

ECMLibra reported that stock levels declined a slight two per cent into April following the slight decline in production and also likely due to local disappearances. This was in line with its expectations and the research house believed that more of the same can be expected into May. Again, judging from historical movements, stock levels typically dropped going into May and June before picking up.

Meanwhile, the research house revealed that CPO future closed down week-on-week (w-o-w) by 2.5 per cent as prices took a cue from crude oil. Soy prices reacted the same as this was despite there being much bearish news in the market. In fact for CPO, May export numbers from the first to fifteenth had so far looking positive as shipments were reportedly increased 18 per cent to 23 per cent. Shares at home were generally negative w-o-w with only Genting Plantations Bhd and Boustead Holdings Bhd gaining slightly.

ECMLibra stated that corporate news for the week includes Kuala Lumpur Kepong Bhd purchase of a glycerine and fatty acids plant in Germany for some RM245 million. Little details on the company had so far been disclosed but a ballpark base case contribution of RM21 million for next year had been mooted.

The research house also stated that most attention over the next two weeks would be on corporate results. IOI Corporation Bhd announced its results last Friday which was as expected a weak quarter.

Annualised and adjusted, the ninth month for the current financial year (9MFY10) was 2.8 per cent above house estimates but 15.4 per cent below street. The group recorded a CPO average selling price of RM2,330 for year to date this year, lower than the Malaysia Palm Oil Board average of RM2,376.

ECMLibra saw that CPO prices have potential to weaken slightly further if crude oil continues to do so as well. Otherwise, prices have no reason for major gyrations given the lack of catalysts.